1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended June 30, 1995 Comission file number: 0-13166 CoBancorp Inc. (Exact name of registrant as specified in its charter) Ohio 34-1465382 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 124 Middle Avenue, Elyria, Ohio 44035 (Address of principal executive offices) (Zip Code) (216) 329-8000 Registrant's telephone number, including area code Not applicable Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. As of June 30, 1995, there were 3,337,118 outstanding common shares, with no par value, of the Registrant. -1- 2 INDEX COBANCORP INC. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page Consolidated balance sheets -- June 30, 1995 and December 31, 1994 3 Consolidated statements of income -- Three months ended June 30, 1995 and 1994 and six months ended June 30, 1995 and 1994 4 Consolidated statements of cash flows -- Six months ended June 30, 1995 and 1994 5 Notes to consolidated financial statements -- June 30, 1995 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION 12 SIGNATURES 13 EXHIBITS 14 -2- 3 COBANCORP INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30 December 31 1995 1994 ---------------- ---------------- ASSETS Cash and due from banks $31,647,781 $29,271,444 Investment securities-(Market value $171,969,000 at June 30, 1995 and $147,128,000 at December 31, 1994) 170,619,149 149,807,048 Federal funds sold 8,000,000 2,500,000 Loans 322,404,979 330,132,961 Less allowance for loan losses 5,662,941 5,616,859 ---------------- ---------------- Net loans 316,742,038 324,516,102 Bank premises and equipment, net 10,764,005 10,585,653 Accrued income and prepaid expenses 5,033,295 3,980,626 Other assets 9,417,735 11,066,084 ---------------- ---------------- Total Assets $552,224,003 $531,726,957 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Demand-noninterest bearing $66,028,770 $69,649,373 Demand-interest bearing 52,966,581 55,965,771 Savings and other time 363,790,915 340,221,731 ---------------- ---------------- Total deposits 482,786,266 465,836,875 Short-term funds 19,320,211 21,357,228 Other liabilities 3,006,757 2,770,882 Employee stock ownership plan obligation 692,760 780,260 ---------------- ---------------- Total liabilities 505,805,994 490,745,245 Shareholders' equity Capital stock, no par value 5,000,000 shares authorized 3,337,118 shares issued and outstanding (3,310,011 at December 31, 1994) 5,769,049 5,182,737 Capital surplus 16,623,320 16,623,320 Retained earnings 24,783,279 22,868,953 Unrealized gain (loss) on available-for-sale investment securities (net of income tax) (64,879) (2,913,038) Employee stock ownership plan obligation (692,760) (780,260) ---------------- ---------------- Total shareholders' equity 46,418,009 40,981,712 ---------------- ---------------- Total Liabilities and Shareholders' Equity $552,224,003 $531,726,957 ================ ================ See accompanying notes to consolidated financial statements. -3- 4 COBANCORP INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) JUNE 30, 1995 THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 1995 1994 1995 1994 ---------------- ---------------- ---------------- ---------------- INTEREST INCOME Loans (including fees) Taxable $7,583,187 $6,686,725 $14,944,178 $12,874,257 Tax-exempt 48,686 40,293 96,733 80,487 Investment securities Taxable 1,465,094 998,917 2,842,094 2,288,150 Tax-exempt 985,921 885,678 1,958,809 1,739,534 Federal funds sold 15,434 8,829 17,062 32,418 ---------------- ---------------- ---------------- ---------------- TOTAL INTEREST INCOME 10,098,322 8,620,442 19,858,876 17,014,846 INTEREST EXPENSE Deposits 3,883,971 2,623,470 7,235,124 5,249,406 Short-term borrowed funds 217,507 160,941 465,092 277,936 ---------------- ---------------- ---------------- ---------------- TOTAL INTEREST EXPENSE 4,101,478 2,784,411 7,700,216 5,527,342 ---------------- ---------------- ---------------- ---------------- NET INTEREST INCOME 5,996,844 5,836,031 12,158,660 11,487,504 PROVISION FOR LOAN LOSSES 60,000 83,333 120,000 208,333 ---------------- ---------------- ---------------- ---------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,936,844 5,752,698 12,038,660 11,279,171 OTHER INCOME Service charges on deposit accounts 477,582 434,882 937,197 836,648 Trust fees 327,500 324,999 667,500 649,998 Other 239,420 226,012 447,862 356,935 Securities gains 7,623 117,394 3,505 408,525 ---------------- ---------------- ---------------- ---------------- TOTAL OTHER INCOME 1,052,125 1,103,287 2,056,064 2,252,106 OTHER EXPENSES Salaries, wages and benefits 2,277,578 2,248,027 4,606,927 4,561,083 Occupancy--net 372,488 357,035 759,430 715,231 Furniture and equipment 172,500 142,339 345,000 279,039 Taxes, other than income and payroll 147,280 154,477 296,867 310,785 FDIC insurance 250,185 240,065 500,370 479,261 Other 2,059,877 2,194,693 4,106,712 4,199,538 ---------------- ---------------- ---------------- ---------------- TOTAL OTHER EXPENSES 5,279,908 5,336,636 10,615,306 10,544,937 ---------------- ---------------- ---------------- ---------------- INCOME BEFORE INCOME TAXES 1,709,061 1,519,349 3,479,418 2,986,340 INCOME TAX EXPENSE 288,000 242,000 598,000 492,000 ---------------- ---------------- ---------------- ---------------- NET INCOME $1,421,061 $1,277,349 $2,881,418 $2,494,340 ================ ================ ================ ================ NET INCOME PER SHARE $0.43 $0.38 $0.86 $0.75 ================ ================ ================ ================ See notes to consolidated financial statements. -4- 5 COBANCORP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30 1995 1994 ---------------- ---------------- OPERATING ACTIVITIES Net income $2,881,418 $2,494,340 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan and real estate losses 120,000 208,333 Provision for depreciation and amortization 705,304 492,489 Accretion of discounts on purchased loans (52,220) Amortization of premiums less accretion of discounts on investment securities (178,405) 66,329 Realized securities (gains) (3,505) (408,525) (Increase) in interest receivable (363,825) (137,362) Increase in interest payable 169,881 33,763 (Increase) in other assets (642,284) (547,733) Increase (decrease) in other liabilities 139,491 (131,459) ---------------- ---------------- Net Cash Provided By Operating Activities 2,775,855 2,070,175 INVESTING AND LENDING ACTIVITIES Proceeds from sales of available-for-sale investment securities 11,869,428 28,460,553 Maturities of investment securities 3,199,062 16,194,248 Purchases of investment securities (31,383,289) (20,540,264) Net decrease in credit card receivables 141,568 188,810 Net decrease (increase) in longer-term loans 7,564,715 (32,134,963) Purchases of premises and equipment, net of retirements (749,102) (650,999) ---------------- ---------------- Net Cash Used By Investing Activities (9,357,618) (8,482,615) DEPOSIT AND FINANCING ACTIVITIES Net (decrease) increase in demand deposits and savings accounts (31,321,057) 675,283 Net increase (decrease) in certificates of deposit 48,270,449 (1,432,167) Net increase (decrease) in short-term funds (2,037,017) 6,026,123 Cash dividends (967,092) (856,733) Dividend investment plan 253,375 92,180 Long-term incentive plan 259,442 130,721 ---------------- ---------------- Net Cash Provided By Financing Activities 14,458,100 4,635,407 ---------------- ---------------- Increase (Decrease) In Cash and Cash Equivalents 7,876,337 (1,777,033) Cash and cash equivalents at beginning of period 31,771,444 32,051,488 ---------------- ---------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $39,647,781 $30,274,455 ================= ================ See accompanying notes to consolidated financial statements. -5- 6 COBANCORP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1995 NOTE A PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of CoBancorp Inc. and its wholly-owned subsidiary, PREMIERBank & Trust. All material intercompany accounts and transactions have been eliminated. BASIS OF PRESENTATION: The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. It is the opinion of management that all adjustments made to the unaudited interim financial statements were of a normal recurring nature. CASH EQUIVALENTS: For purpose of the Statements of Cash Flows, cash equivalents include amounts due from banks and federal funds sold. Generally, federal funds are purchased and sold for periods of less than thirty days. PER SHARE AMOUNTS: All per share amounts have been adjusted to reflect the four-for-three stock split in February 1994. RECLASSIFICATIONS: Certain amounts in the 1994 consolidated financial statements have been reclassified to conform to the 1995 presentation. -6- 7 COBANCORP INC. JUNE 30, 1995 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion focuses on information about CoBancorp Inc.'s financial condition and results of operations which is not otherwise apparent from the consolidated financial statements attached. EARNINGS RESULTS Net income increased 16.0 percent to $2,881,000 for the first six months of 1995, from the $2,494,000 earned in the same period of 1994. Earnings per share increased to $0.86, up from $0.75 per share in the first six months of the prior year. NET INTEREST INCOME The net interest margin on a fully taxable-equivalent basis was 5.35 percent for the first six months of 1995, compared to 5.56 percent one year ago. Net interest income for the first six months of 1995 amounted to $13,218,000 compared to $12,425,000 in 1994. These amounts reflect net interest income adjusted to a fully taxable-equivalent basis by recognizing the tax effect of interest earned on tax-exempt securities and loans. The increase in fully-taxable equivalent net interest income of $793,000, or 6.4 percent, is attributable primarily to an increase in earning assets and to higher interest rates on those assets. These factors were partially offset by an increase in interest-bearing liabilities and, to a lesser extent, an increase in the cost of those liabilities. Average interest-earning assets were $491,852,000 and $445,119,000 for the first six months of 1995 and 1994, respectively. The following table sets forth for the periods indicated a summary of the changes in interest income and interest expense on a fully taxable-equivalent basis resulting from changes in volume and changes in rates for the major components of interest-earning assets and interest-bearing liabilities: -7- 8 SUMMARY OF NET INTEREST INCOME CHANGES (RATE/VOLUME VARIANCE) SIX MONTHS ENDED 6/30/95 VS. 6/30/94 (IN THOUSANDS OF DOLLARS) CHANGE IN | INTEREST INCOME/EXPENSE DUE TO CURRENT CURRENT OLD OLD | ---------------------------------- VOLUME RATE VOLUME RATE | VOLUME RATE BOTH TOTAL Taxable securities $ 83,240 6.83% $ 75,374 6.08% | $ 239 $285 $ 30 $ 554 Nontaxable securities 73,675 8.06% 65,268 8.08% | 339 (6) (1) 332 Federal funds sold & s/t funds 584 5.81% 2,049 3.15% | (23) 27 (19) (15) Taxable loans: | Real estate loans 154,350 7.96% 141,832 8.26% | 513 (212) (19) 282 Commercial loans 135,205 9.30% 122,611 7.91% | 494 848 104 1,446 Installment loans 39,094 10.09% 31,263 10.72% | 416 (98) (24) 294 Overdrafts 89 0.00% 212 0.00% | 0 0 0 0 Quickline loans 122 17.39% 110 18.15% | 1 0 0 1 Credit card loans 2,653 39.00% 2,703 34.98% | (9) 54 0 45 Nontaxable loans: | IRBs 2,840 10.32% 3,913 6.23% | (33) 80 (22) 25 -------- -------- | ------ ---- ---- ------ TOTAL INTEREST-EARNING ASSETS 491,852 8.50% 445,336 8.06% | 1,937 978 49 2,964 Interest-bearing transaction accts: | NOW 21,009 2.09% 24,145 2.10% | (33) (1) 1 (33) Advantage 50 30,096 2.02% 29,206 2.02% | 9 1 0 10 Savings accounts: | Savings 135,266 2.32% 145,599 2.38% | (122) (40) 3 (159) IMMAs 25,494 2.16% 29,765 2.17% | (46) (1) 0 (47) Time deposits: | Christmas/vacation club 1,078 3.92% 2,539 4.01% | (29) (1) 0 (30) CD under $100,000 99,970 4.84% 86,239 3.93% | 268 389 61 718 CD over $100,000 (regular) 13,171 5.45% 4,987 4.17% | 169 32 52 253 CD over $100,000 (public funds) 44,493 6.11% 11,640 3.35% | 545 160 451 1,156 IRAs 31,054 4.93% 30,041 4.31% | 22 92 3 117 Short-term borrowings: | Repurchase agreements 3,250 5.27% 4,510 3.19% | (20) 47 (13) 14 Fed funds purchased 5,645 6.15% 1,593 4.01% | 81 17 44 142 Notes payable TT&L 2,211 5.74% 2,765 3.29% | (9) 34 (7) 18 Sweep 13,192 2.15% 12,055 2.14% | 12 1 0 13 -------- -------- | ------ ---- ---- ------ TOTAL INTEREST-BEARING LIABILITIES 425,927 3.64% 385,085 2.89% | 847 730 595 2,172 | ------ ---- ---- ------ NET INTEREST INCOME 5.35% 5.56% | $1,090 $248 ($546) $ 792 | ====== ==== ===== ====== YTD FTE net interest income (current year) $13,218 YTD FTE net interest income (prior year) 12,425 ------- Change in FTE net interest income $ 792 ======= Presented on a fully taxable-equivalent basis, using year-to-date average balances. -8- 9 Average Consolidated Balance Sheets, Net Interest Income and Rates Six months ended June 30, 1995 Six months ended June 30, 1994 ----------------------------------- --------------------------------- Average Interest Average Interest Daily (Annual- Yield/ Daily (Annual- Yield/ Balance ized) Rate Balance ized) Rate -------------------- ------ -------------------- ------ (In thousands of dollars) (In thousands of dollars) ASSETS Interest-earning assets Loans (including fees) (1) Taxable $331,513 $29,868 9.01% $298,731 $25,732 8.61% Tax-exempt 2,840 293 (2) 10.32% (2) 3,913 244 (2) 6.23% (2) Investment securities Taxable 83,240 5,688 6.83% 75,375 4,581 6.08% Tax-exempt 73,675 5,936 (2) 8.06% (2) 65,268 5,271 (2) 8.08% (2) Federal funds sold 584 34 5.82% 1,832 58 3.17% -------- ------- -------- ------- Total interest-earning assets 491,852 41,819 (2) 8.50% (2) 445,119 35,886 (2) 8.06% (2) Noninterest-earning assets Cash and due from banks 23,361 22,841 Bank premises and equipment 10,688 10,679 Other assets 14,968 12,590 Less allowance for loan losses (5,636) (5,354) -------- -------- 43,381 40,756 -------- -------- Total assets $535,233 $485,875 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities Interest-bearing transaction accounts $ 51,104 1,049 2.05% $ 53,351 1,095 2.05% Savings 160,760 3,693 2.30% 175,363 4,107 2.34% Time deposits 189,765 9,848 5.19% 135,447 5,384 3.97% Short-term borrowings 24,297 929 3.82% 20,923 556 2.66% -------- ------- -------- ------- Total interest-bearing liabilities 425,926 15,519 3.64% 385,084 11,142 2.89% ------- ------- Noninterest-bearing liabilities Demand deposits 61,285 56,764 Other liabilities 4,416 4,503 Shareholders' equity 43,606 39,524 -------- -------- Total liabilities and shareholders' equity $535,233 $485,875 ======== ======== Net interest income $26,300 $24,744 ======= ======= Net yield/rate on interest earning assets 5.35% (2) 5.56% (2) <FN> (1) Nonaccrual loans are included in average loan balance. (2) Presented on a fully tax equivalent basis using a tax rate of 34%. -9- 10 NET NONINTEREST EXPENSES Total net noninterest expense (total noninterest expense less total noninterest income) has increased minimally, to $8,559,000 for the first six months of 1995, compared to $8,293,000 the previous year. However, exclusive of net securities gains and losses, net noninterest expenses decreased by $139,000 from the first half of last year. During the last quarter of 1994, the Corporation began a project, using the expertise of a national consulting firm, to analyze operating efficiencies and bank pricing and procedures. The benefits from this project are beginning to reflect in the Corporation's results of operations, as reflected in the one-percent increase in salaries, wages and benefits over half-quarter 1995, in spite of the addition of three branches since then. Occupancy, furniture and equipment costs, and FDIC insurance have increased approximately 9.0 percent or $131,000 compared to last year. However, these increased expenses have been adequately offset by increased income from service charges on deposits, and decreases in administrative expenses. The provision for loan losses decreased to $120,000 for the first six months of 1995, compared to $208,000 for the same period last year. This reflects the continuing emphasis on asset quality. NONPERFORMING LOANS Nonaccrual loans were above year-end 1994 levels, and at June 30, 1995, totaled $859,000, compared to $358,000 at December 31, 1994. The category of accruing loans past due 90 days or more totaled $105,000 at June 30, 1995 and $51,000 at December 31, 1994. The balance in the allowance for loan losses was $5,663,000 at June 30, 1995 compared to $5,617,000 at December 31, 1994. Except for installment and credit cards, loans on which interest and/or principal is 90 days or more past due are placed on nonaccrual status and any previously accrued but uncollected interest is reversed from income. Such loans remain on a cash basis for recognition of income until both interest and principal are current. Installment and credit card loans past due greater than 120 days are charged off and previously accrued but uncollected interest is reversed from income. The following table summarizes nonaccrual and past due loans (in thousands of dollars). June 30, 1995 December 31, 1994 (+000) (+000) --------- --------- Accruing loans past due 90 days or more as to principal or interest: Loans secured by real estate $ 1 $ 3 Commercial and industrial 2 0 Loans to individuals 102 48 ------ ----- $ 105 $ 51 ====== ===== Nonaccrual loans: Loans secured by real estate $ 851 $ 358 Commercial and industrial 8 0 ------ ----- $ 859 $ 358 ====== ===== -10- 11 ALLOWANCE FOR LOAN LOSSES AND LOAN CHARGE-OFFS In determining the adequacy of the allowance for loan losses, management evaluates past loan loss experience, present and anticipated economic conditions and the credit worthiness of its borrowers. The allowance for loan losses is increased by provisions charged against income and recoveries of loans previously charged off. The allowance is decreased by loans that are determined uncollectible by management and charged against the allowance. Potential problem loans are those loans which are on the Bank's "watch list." These loans exhibit characteristics that could cause the loans to become nonperforming or require restructuring in the future. This "watch list" is reviewed monthly and adjusted for changing conditions. At the end of the first six months, the allowance for loan losses as a percentage of loans was 1.68 percent in 1995, and 1.80 percent in 1994. The provision for loan losses was $120,000 in the six months ended June 30, 1995, and $208,000 for the same period of 1994. The following table contains information relative to loan loss experience for the six months ended June 30, 1995, and the year ended December 31, 1994. Six months ended June Year ended June 30, 1995 December 31, 1994 (+000) (+000) ------ ----- Allowance for loan losses at beginning of period $5,617 $5,226 Loans charged off: Real estate 5 31 Installment 237 296 Credit card 35 61 Other 2 5 Commercial and collateral 6 38 ------ ------ 285 431 Recoveries on loans charged off: Real estate 3 33 Installment 133 245 Credit card 6 32 Other 1 1 Commercial and collateral 68 303 ------ ------ 211 614 Net charge-offs (recoveries) 74 (183) Provision for loan losses 120 208 ------ ------ Allowance for loan losses at end of period $5,663 $5,617 ====== ====== Ratio of allowance for loan losses to total loans at end of period 1.76% 1.70% ==== ==== -11- 12 CAPITAL At June 30, 1995, PREMIERBank and Trust's risk-based capital ratios based on Federal Reserve Board guidelines were as follows: Tier 1 "core" capital to risk-weighted assets 13.75 percent Total capital to risk-weighted assets 15.00 percent Tier 1 leverage ratio 8.22 percent These ratios substantially exceed the minimums which are in effect for bank holding companies after the end of 1992. Return on average assets was 1.13 percent for the first half of 1995, compared to 1.03 percent for the same period in 1994. Return on average equity was 13.87 percent for the first six months of 1995, compared to 12.72 percent for the first six months of 1994. PART II. OTHER INFORMATION Except as set forth below, the items of Part II are inapplicable or the answers thereto are negative and, accordingly, no reference is made to said items in this report. Item 4--Submission of matters to a vote of security holders The annual meeting of shareholder's of CoBancorp Inc., was held April 19, 1995, at 11:00 a.m., at the Lorain County Community College, Classroom/Conferencing Facility, 1005 North Abbe Road, Elyria, Ohio in accordance with the notice of meeting and proxy statement mailed to shareholders. All matters proposed by management in the proxy statement were approved by the shareholders. Item 6--Exhibits and Reports on Form 8-K (a) Exhibits: Second Amended and Restated Articles of Incorporation of CoBancorp Inc. Code of Regulations of CoBancorp Inc., dated April 19, 1995 (b) The registrant was not required to file any reports on Form 8-K during the quarter ended June 30, 1995. -12- 13 COBANCORP INC. JUNE 30, 1995 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COBANCORP INC. (Registrant) Timothy W. Esson Executive Vice President August 10, 1995 -13- 14 SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION OF COBANCORPINC. These Second Amended and Restated Articles of Incorporation of CoBancorp Inc. (the "Corporation"), adopted by the shareholders of the Corporation on April 20, 1994 and April 19, 1995 and by the Board of Directors on May 15, 1995, supersede the existing Amended and Restated Articles of Incorporation of the Corporation. ARTICLE I The name of the Corporation is CoBancorp Inc. ARTICLE II The place in the State of Ohio where the principal office of the Corporation is to be located is in the City of Elyria, County of Lorain. ARTICLE III The purposes for which the Corporation is formed is to engage in any lawful act or activity for which corporations may be formed under the Ohio General Corporation Laws (ORC Section 1701.01 et seq.). ARTICLE IV The aggregate number of common shares which the Corporation shall have the authority to issue is five million (5,000,000) shares each of no par value. Shares of the authorized and outstanding common stock shall be subject to redemption by the Corporation at the direction of a vote of a majority of the Board of Directors at a regular or special meeting. Each shareholder shall be entitled to one vote for each share of stock standing in his name on the books of the Corporation. No holder of shares of any class shall have the right to vote cumulatively in the election of Directors. Furthermore, the Corporation, through its Board of Directors, shall have the power to purchase, hold, sell and transfer the shares of its own capital stock provided that it does not use its funds or property for the purchase of its own shares of capital stock when such use will cause any impairment of its capital, except when otherwise permitted by law, and provided further that shares of its own capital stock belonging to it are not voted upon directly or indirectly. -14- 15 ARTICLE V The amount of stated capital with which the Corporation will commence business is at least five hundred dollars ($500.00). ARTICLE VI The Board of Directors of the Corporation is hereby authorized to fix and determine and to vary the amount of working capital of the Corporation, to determine whether any and, if any, what part of its surplus, however created or arising, shall be used or disposed of or declared in dividends or paid to shareholders, and without action by the shareholders, to use and apply such surplus or any part thereof at any time or from time to time in the purchase or acquisition of shares of any class, voting trust certificates for shares, bonds, debentures, notes, script, warrants, obligations, evidences of indebtedness of the Corporation or other securities of the Corporation, to such an extent or amount and in such manner and upon such terms as the Board of Directors of the Corporation shall deem expedient to the extent not prohibited by law. ARTICLE VII The names and addresses of the incorporators of CoBancorp Inc. are: Robert T. Bowman 193 Overbrook Drive Elyria, Ohio 44035 Worth A. Fauver, Jr. 318 Hamilton Circle Elyria, Ohio 44035 Robert W. Vandemark 917 Garford Avenue Elyria, Ohio 44035 David C. Smith 238 Pepperdine Drive Elyria, Ohio 44035 Timothy W. Esson 9392 Bassett Lane North Royalton, Ohio 44133 -15- 16 ARTICLE VIII The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an Executive Committee, which committee shall have and may exercise, to the extent provided by law, all of the authority of the Board of Directors in the management of the Corporation. The designation of such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him by law. ARTICLE IX The preemptive right to purchase additional shares or any other securities of the Corporation is expressly denied to all shareholders or securities holders of all classes. ARTICLE X Any merger, consolidation, or acquisition of this Corporation by another corporation without the approval of this Corporation's Board of Directors shall require the affirmative approval of the holders of 75 percent of the issued and outstanding common shares of stock of the Corporation and 75 percent of the issued and outstanding preferred shares or other class of shares, regardless of limitations or restriction on the voting power thereof, entitled to vote at a meeting duly called for such purpose. -16- 17 CODE OF REGULATIONS OF COBANCORP INC. ARTICLE I MEETING OF SHAREHOLDERS Section 1. ANNUAL MEETING. The annual meeting of the shareholders of this corporation for the purpose of fixing or changing the number of directors of the corporation, electing directors and transacting such other business as may come before the meeting, shall be held on the third Wednesday in April of each year, but if a legal holiday, then on the next business day following, or at such other time as may be fixed by the Board of Directors. Section 2. SPECIAL MEETINTGS. Special meetings of the shareholders may be called at any time by the Chairman of the Board of Directors, President, or a Vice President, or a majority of the Board of Directors acting with or without a meeting, or the holder or holders of one-fourth of all shares outstanding and entitled to vote thereat. Section 3. PLACE OF MEETINGS. Meetings of shareholders shall be held at the Main Office of the corporation unless the Board of Directors decides that a meeting shall be held at some other place within or without the State of Ohio and causes the notice thereof to so state. Section 4. NOTICE OF MEETINGS. Unless waived, a written, printed, or typewritten notice of each annual or special meeting stating the day, hour, and place and the purpose or purposes thereof shall be served upon or mailed to each shareholder of record (a) as of the day next preceding the day on which notice is given or (b) if a record date therefor is duly fixed, of record as of said date. Such notice shall be given not more than sixty (60) days, nor less than ten (10) days before any such meeting. If mailed, it shall be directed to a shareholder at his address as the name appears upon the records of the corporation. All notices with respect to any shares of record in the names of two or more persons may be given to whichever of such persons is named first on the books of the corporation and notice so given shall be effective as to all the holders of record of such shares. Every person who by operation of law, transfer, or otherwise shall become entitled to any share or right or interest therein, shall be bound by every notice in respect of such share which, prior to his name and address being entered upon the books of the corporation as the registered holder of such share, shall have been given to the person in whose name such share appeared of record. -17- 18 Section 5. WAIVER OF NOTICE. Any shareholder, either before or after any meeting, may waive any notice required to be given by law or under these Regulations; and whenever all of the shareholders entitled to vote shall meet in person or by proxy and consent to holding a meeting, it shall be valid for all purposes without call or notice, and at such meeting any action may be taken. Section 6. QUORUM. The shareholders present in person or by proxy at any meeting for the determination of the number of directors, or the election of directors, or for the consideration and action upon reports, required to be laid before such meeting, shall constitute a quorum. At any meeting called for any other purpose, the holders of shares entitling them to exercise a majority of the voting power of the corporation, present in person or represented by proxy, shall constitute a quorum, except when a greater proportion is required by law, the Articles of Incorporation or this Code of Regulations. At any meeting, whether a quorum is present, all questions and business which shall come before the meeting shall be determined by the vote of the holders of a majority of such voting shares as are represented in person or by proxy, except when a greater proportion is required by law or the Articles of Incorporation. At any meeting, whether a quorum is present or not, the holders of a majority of the voting shares represented by shareholders present in person or by proxy may adjourn from time to time and from place to place without notice other than by announcement at the meeting. At any such adjourned meeting at which a quorum is present, any business may be transacted which might be transacted at the meeting as originally notified or held. Section 7. PROXIES. Any shareholder of record who is entitled to attend a shareholders' meeting, or to vote thereat or to assent or give consent in writing, shall be entitled to be represented at such meetings or to vote thereat or to assent or give consent in writing, as the case may be, or to exercise any other of his rights, by proxy or proxies appointed by a writing signed by such shareholders, which need not be sealed, witnessed or acknowledged. A telegram, cablegram, wireless message, facsimile (fax), or photogram appearing to have been transmitted by a shareholder, or a photograph, photostatic or equivalent reproduction of a writing appointing a proxy or proxies shall be a sufficient writing. No appointment of proxy shall be valid after the expiration of eleven (11) months after it is made, unless the writing specifies the date on which it is to expire or the length of time it is to continue in force. -18- 19 Unless the writing appointing a proxy or proxies otherwise provides: (1) Each and every proxy shall have the power of substitution, and when three (3) or more persons are appointed, a majority of them or their respective substitutes may appoint a substitute or substitutes to act for all; (2) If more than one proxy is appointed, then (a) with respect to voting or giving consents at a shareholders' meeting, or if only one attends then that one may exercise all the voting and consenting authority thereat; and if an even number attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise such authority with respect to an equal number of shares; (b) with respect to exercising any other authority, a majority may act for all; (3) A writing appointing a proxy shall not be revoked by the death or incapacity of the maker unless before the vote is taken or the authority granted is otherwise exercised, written notice of such death or incapacity is given to the corporation by the executor or the administrator of the estate of such maker or by the fiduciary having control of the shares in respect of which the proxy was appointed; (4) The presence of a shareholder at a meeting shall not operate to revoke a writing appointing a proxy. A shareholder, without affecting any vote previously taken, may revoke such writing not otherwise revoked by giving notice to the corporation in writing or in open meeting. Section 8. VOTING. At any meeting of shareholders, each shareholder of the corporation shall, except as otherwise provided by law or the Articles of Incorporation or by these Regulations, be entitled to one vote in person or by proxy for each share of the corporation registered in his name on the books of the corporation (1) on the record date for the determination of shareholders entitled to vote at such meeting, notwithstanding the prior or subsequent sale, or other disposal of such share or shares or transfer of the same on the books of the corporation on or after the record date, or (2) if no such record date shall have been fixed, then at the time of such meeting. Section 9. ACTION WITHOUT MEETING. Any action which may be authorized or taken at any meeting of shareholders may be authorized or taken without a meeting in writing or writings signed by all of the holders of shares who would be entitled to notice of a meeting of the shareholders held for such purpose. Such writing or writings shall be filed with or entered upon the records of the corporation. -19- 20 ARTICLE II DIRECTORS Section 1. NUMBER OF DIRECTORS. The election of directors shall take place at the Annual Meeting of Shareholders, or at a special meeting called for that purpose, and shall be by ballot. Directors shall be elected for one term and shall continue in office until their successors are elected and qualified. The number of members of the Board of Directors shall be determined pursuant to law by Resolution of the shareholders, but shall be not less than three (3). Section 2. ELECTION AND TERM OF DIRECTORS. The directors shall be divided into three classes: Class I, Class II, and Class III. Such classes shall be nearly equal in number as possible. The term of office of the initial Class I directors shall expire at the Annual Meeting of Shareholders in 1985, the term of office of the initial Class II directors shall expire at the Annual Meeting of Shareholders in 1986, and the term of office of the initial Class III directors shall expire at the Annual Meeting of Shareholders in 1987, or thereafter in each case when their respective successors are elected and have qualified. At each annual election held after classification of directors, the directors chosen to succeed those whose terms then expire shall be identified as being of the same class as the directors they succeed and shall be elected for a term expiring at the third succeeding annual meeting or thereafter when their respective successors in each case are elected and have qualified. If the number of directors is changed, any increase or decrease in directors shall be apportioned among the classes so as to maintain all classes as nearly equal in number as possible, and any additional director elected to any class shall hold office for a term which shall coincide with the terms of such class. Upon the effectiveness of this provision, the Board of Directors is authorized to take such steps as are necessary to implement these provisions. Section 3. VACANCIES. Vacancies in the Board of Directors may be filled by a majority vote of the remaining directors until an election to fill such vacancies is had. Shareholders entitled to elect directors shall have the right to fill any vacancy in the board (whether the same has been temporarily filled by the remaining directors or not) at any meeting of the shareholders called for that purpose, and any directors elected at any such meeting of shareholders shall serve until the next annual election of directors and until their successors are elected and qualified. The directors may on majority vote change the number of directors who shall comprise the board or fill any vacancies which result from the shareholders not electing the full number of directors which is fixed at the annual meeting. Section 4. RETIREMENT. Within thirty (30) days of the attaimnent of age seventy (70), a director shall become ineligible to serve as a director of the corporation and shall retire. -20- 21 Section 5. TRANSACTIONS BETWEEN THE CORPORATION AND ITS DIRECTORS AND OFFICERS. No contract, action, or transaction shall be void or voidable with respect to the corporation for the reason that it is between or affects the corporation and one or more of its directors or officers, or between or affects the corporation and any other person in which one or more of its directors or officers are directors, trustees, or officers, or have a financial or personal interest, or for the reason that one or more interested directors or a committee of the directors that authorizes such contract, action, or transaction, if in any such case any of the following apply: (a) The material facts as to his or their relationship or interest and as to the contract, action or transaction are disclosed or are known to the directors or committee and the directors or committee, in good faith reasonably justified by such facts, authorizes the contract, action, or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors constitute less than a quorum of the directors or the committee; (b) The material facts as to his or their relationship or interest and as to the contract, action, or transaction are disclosed or are known to the shareholders entitled to vote thereon and the contract, action, or transaction is specifically approved at a meeting of the shareholders held for such purpose by the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of the corporation held by persons not interested in the contract, action, or transaction; or (c) The contract, action, or transaction is fair as to the corporation as of the time it is authorized or approved by the directors, a committee of the directors, or the shareholders. Interested directors may be counted in determining the presence of a quorum at a meeting of the directors, or of a committee of the directors that authorizes the contract, action, or transaction that may involve or affect a change in control of the corporation or his continuation in office as director of the corporation. Section 6. INDEMNIFICATION. The corporation shall indemnify its directors, officers, employees and agents to the fullest extent permitted under Ohio law. ARTICLE III POWERS, MEETING, AND COMPENSATION OF DIRECTORS Section 1. MEETINGS OF THE BOARD. A meeting of the Board of Directors shall be held immediately following the adjournment of each shareholders' meeting at which directors are elected, or within ten (10) days thereafter, and notice of such meeting need not be given. -21- 22 The Board of Directors may, by by-laws or resolution, provide for other meetings of the Board. Special meetings of the Board of Directors may be held at any time upon the call of the Chairman of the Board of Directors, President, a Vice President, or any two members of the Board. Notice of any special meeting of the Board of Directors shall be mailed to each director, addressed to him at his residence or usual place of business, at least two (2) days before the day on which the meeting is to be held, or shall be sent to him at such place by telegraph, cable, radio, facsimile (fax), or wireless, or be given personally or by telephone, not later than the day before the day on which the meeting is to be held. Every such notice shall state the time and place of the meeting but need not state the purposes thereof. Notice of any meeting of the Board need not be given to any director, however, if waived by him in writing or by telegraph, cable, radio, wireless, facsimile (fax) or telephone communication whether before or after such meeting is held, or if he shall be present at such meeting; and any meeting of the Board shall be a legal meeting without any notice thereof having been given, if all the directors shall be present thereat. Meetings of the Board shall be held at the office of the corporation, or at such other place, within or without the State of Ohio as the Board may determine from time to time and as may be specified in the notice thereof. Meetings of the Board of Directors may also be held by the utilization of simultaneous telephonic communications linking all directors present at such meetings, and all such business conducted via such telephonic communication shall be considered legally enforceable by the corporation. Section 2. QUORUM. A majority of the Board of Directors shall constitute a quorum for the transaction of business, provided that whenever less than a quorum is present at the time and place appointed for any meeting of the Board, a majority of those present may adjourn the meeting from time to time, without notice other than by announcement at the meeting until a quorum is present. Section 3. ACTION WITHOUT MEETING. Any action may be authorized or taken without a meeting in a writing or writings signed by all the directors, which writing or writings shall be filed with or entered upon the records of the corporation. Section 4. COMPENSATION. The directors, as such, shall not receive any salary for their services, but by resolution of the Board, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board; provided that nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of the Loan Committee or of any standing or special committee may by resolution of -22- 23 the Board be allowed such compensation for their services as the Board may deem reasonable, and additional compensation may be allowed to directors for special services rendered. Section 5. BY-LAWS. For the governing of its actions, the Board of Directors may adopt by-laws consistent with the Articles of Incorporation and these Regulations. ARTICLE IV COMMITTEES Section 1. COMMITTEES. The Board of Directors may by resolution provide for such standing or special committees as it deems desirable, and discontinue the same at pleasure. Each such committee shall have such powers and perform such duties, not inconsistent with law, as may be delegated to it by the Board of Directors. Vacancies in such committees shall be filled by the Board of Directors or as it may provide. ARTICLE V OFFICERS Section 1. GENERAL PROVISIONS. The Board of Directors shall elect a President, such number of Vice Presidents as the Board may from time to time determine, a Secretary and Treasurer, and, in its discretion, a Chairman of the Board of Directors and a Vice Chairman of the Board of Directors. If no such Chairman of the Board is elected by the Board of Directors, the President of the corporation shall act as presiding officer of the corporation. The Board of Directors may from time to time create such offices and appoint such other officers, subordinate officers and assistant officers as it may determine. The President and the Chairman of the Board shall be, but the other officers need not be, chosen from among the members of the Board of Directors. Section 2. TERM OF OFFICE. The officers of the corporation shall hold office at the pleasure of the Board of Directors and, unless sooner removed by the Board of Directors, until the organizational meeting of the Board of Directors following the date of their election and until successors are chosen and qualified. The Board of Directors may remove any officer at any time, with or without cause, by a majority vote. A vacancy in any office, however created, shall be filled by the Board of Directors. -23- 24 ARTICLE VI DUTIES OF OFFICERS Section 1. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one be elected, shall preside at all meetings of the shareholders and the Board of Directors and shall have such other powers and duties as may be prescribed by the Board of Directors or prescribed by Ohio's General Corporation Act. Section 2. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if one be elected, shall preside at all meetings of the shareholders and the Board of Directors, in the absence of the Chairman of the Board. The Vice Chairman shall have such powers and duties as may be prescribed by the Board of Directors, or prescribed by the Chairman of the Board, or the Ohio Revised Code. Section 3. PRESIDENT. The President shall be the chief executive officer of the corporation and shall exercise supervision over the business of the corporation and over its several officers, subject, however, to the control of the Board of Directors. In the absence of, or if a Chairman of the Board shall not have been elected or a Vice Chairman shall not have been elected, he shall preside at meetings of the shareholders and Board of Directors. He shall have the authority to sign all certificates for shares and all deeds, mortgages, bonds, contracts, notes and other instruments requiring his signature; and shall have all the powers and duties prescribed by the Ohio Revised Code and such others as the Board of Directors may from time to time assign to him. Section 4. VICE PRESIDENTS. The Vice Presidents shall perform such duties as are conferred upon them by these Regulations or as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board or the President. At the request of the President, or by his absence or disability, the Vice President, designated by the President (or in the absence of such designation, the Vice President designated by the Board), shall perform all the duties of the President, and when so acting, shall have all the powers of the President. The authority of Vice Presidents to sign in the name of the corporation all certificates for shares and authorized deeds, mortgages, bonds, contracts, notes and other instruments, shall be coordinate with like authority of the President. Any one or more of the Vice Presidents may be designated as an "Executive Vice President." Section 5. SECRETARY. The Secretary shall keep the minutes of all the proceedings of the shareholders and Board of Directors, and shall make proper record of the same, which shall be attested by him; sign all certificates for shares, and all deeds, mortgages, bonds, contracts, notes, and other instruments executed by the corporation requiring his signature; give notice of meetings of shareholders and directors; produce on request at each meeting of shareholders for the election of directors a certified list of -24- 25 shareholders arranged in alphabetical order; keep such books as may be required by the Board of Directors and file all reports to States, to the Federal Government, and to foreign countries; and perform such other duties as may from time to time be assigned to him, by the Board of Directors, the Chairman of the Board or by the President. Section 6. TREASURER. The Treasurer shall have general supervision of all finances; he shall receive and have in charge all money, bills, notes, deeds, leases, mortgages and similar property belonging to the corporation, and shall do with the same as may from time to time be required by the Board of Directors. He shall keep adequate and correct accounts of the business transactions of the corporation including accounts of its assets, liabilities, receipts, disbursements, gains, losses, stated capital, and shares, together with such other accounts as may be required, and, upon the expiration of his term of office, shall turn over to his successor or to the Board of Directors all property, books, papers, and money of the corporation in his hands; and he shall perform such other duties as from time to time may be assigned to him by the Board of Directors. Section 7. ASSISTANT AND SUBORDINATE OFFICERS. The Board of Directors may appoint such assistant and subordinate officers as it may deem desirable. Each such officer shall hold office during the pleasure of the Board of Directors, and perform such duties as the Board of Directors may prescribe. The Board of Directors may, from time to time, authorize any officer to appoint and remove assistant and subordinate officers, to prescribe their authority and duties, and to fix their compensation. Section 8. DUTIES OF OFFICERS MAY BE DELEGATED. In the absence of any officer of the corporation, or for any other reason the Board of Directors may deem sufficient, the Board of Directors may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any director. ARTICLE VII CERTIFICATES FOR SHARES Section 1. FORM AND EXECUTION. Certificates for shares shall be issued to each shareholder in such form as shall be approved by the Board of Directors. Such certificates shall be signed by the Chairman of the Board of Directors or the President or a Vice President or by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the corporation, which certificates shall certify the number and class of shares held by the shareholder in the corporation, but no certificates for shares shall be delivered until such shares are fully paid. When such a certificate is countersigned by an incorporated transfer agent or registrar, the signature of any of said officers of the corporation may be facsimile, -25- 26 engraved, stamped or printed. Although any officer of the corporation whose manual or facsimile signature is affixed to a share certificate is delivered such certificate, nevertheless, it shall be effective in all respects when delivered. Such certificate for shares shall be transferable in person or by attorney, but, except as hereinafter provided in the case of lost, mutilated or destroyed certificates, no transfer of shares shall be entered upon the records of the corporation until the previous certificates, if any, given for the same shall have been surrendered and canceled. Section 2. LOST, MUTILATED OR DESTROYED CERTIFICATES. If any certificate for shares is lost, mutilated or destroyed, the Board of Directors may authorize the issuance of a new certificate in place thereof upon such terms and conditions as it may deem advisable. The Board of Directors in its discretion may refuse to issue such new certificates until the corporation has been indemnified by a final order or decree of a court of competent jurisdiction. Section 3. REGISTERED SHAREHOLDERS. A person in whose name shares are of record on the books of the corporation shall conclusively be deemed the unqualified owner thereof for all purposes and to have capacity to exercise all rights of ownership. Neither the corporation nor any transfer agent of the corporation shall be bound to recognize any equitable interest in a claim to such shares on the part of any other person, whether disclosed upon such certificate or otherwise, nor shall they be obliged to see to the execution of any trust or obligation. ARTICLE VIII FISCAL YEAR The fiscal year of the corporation shall end on the 31st day of December in each year, or on such other day as may be fixed from time to time by the Board of Directors. ARTICLE IX AMENDMENTS The Regulations may be amended or repealed at any meeting of shareholders called for that purpose by the affirmative vote of the holders or record of shares entitling them to exercise a majority of the voting power on such proposal or, without a meeting, by the unanimous written consent of the shareholders. ______________________________ Secretary April 19, 1995 -26-